Is the economic data too hot for rate cuts?

09/26/25

Stocks took another downturn yesterday, making it three days in a row, but so far we've seen a successful test of key support on some charts. The indices did close off their lows after the support held, but stronger than expected economic data made future interest rate cuts slightly less certain, and that caused concern. Yields and the dollar moved up putting pressure on equities once again.

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We get the PCE Prices and the Personal Income and Spending reports tomorrow. This inflation data was going to be key to the outlook on interest rates, but yesterday's data did a number on that as well.

The GDP, Durable Goods, and Initial Jobless claims all came in better than expected, and that put a little fear into investors that the number of interest rates cuts that we get this year may not be what we thought just a couple of days ago.

The chances if getting two more cuts by the December FOMC meeting went from 82% a week ago, to 73% on Wednesday, and now, after the recent economic data, it has moved down to 61%. That's still a pretty good chance but it makes today's inflation data that much more compelling.

The 10-year Treasury Yield moved up to 4.2% on that data yesterday before hitting strong resistance and pulling back a bit. Don't you love how charts work? 4.2% was a wall of resistance.

The dollar also made a big move higher and here it is again flirting with its 200-day average - something that has held firmly twice in the past several months.


The S&P 500 / C-fund tested one of the lower ends of its ascending trading channel, which was just one layer of support between 6500 and about 6600. So far so good, but yesterday's push off the lows may have only been an attempt to fill the gap that was opened in the morning.

It's interesting that better than expected economic data helped send stocks lower but it goes to show us that the most important catalyst for the stock market is cheap, easy money. The M2 Money Supply is still flowing, but if the Fed gives any indication that rates won't be coming down two more times this year, we may see more damage being done.

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The DWCPF (S-fund) fell through one layer of support yesterday, but it bounced back to close above it, and there were two support lines that were recaptured. If that support does fail, a test and hold near 2400 may be a good time to consider buying, if you've been waiting, but if interest rate cuts are in jeopardy, that may not hold.

ACWX (I-fund) pulled back sharply, and the 0.69% rally in the dollar makes me think that the 0.65% loss in this index may have been generous. It could have fallen further, but we did see some support near 64 hold yesterday. I may be interested closer to 63 if falls down there and holds.

BND (bonds / F-fund) finally fell inside the open gap and it did close back near the top of the gap but it has not been filled yet. I would think that 74 needs to get tested before this regains its footing.

Thanks so much for reading! Have a great weekend!

Tom Crowley


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[Greensboro]

Wife went to purchase some shoes yesterday at Belk's. Shoes that were high at $80-$120 in the past are now in the $150-$180 range "on sale". Shoes are almost exclusively imported. . . If shoes (and coffee) are leading indicators of the tariffs finally landing on the consumer's check-out price, the next few CPI reports could be interesting (assuming we can trust the numbers). I trust what I see and experience for myself much more than what I read. Just sayin'. (She decided NOT to make a purchase. She said she would go barefooted before paying the prices she saw.)

 

[TommyIV]

I trust what I see and experience for myself much more than what I read. Just sayin'.

I agree. Our personal experiences may be a sliver of a sample size to the whole picture, yet they are the most tangible and reliable.

 

[Boghie]

Wife went to purchase some shoes yesterday at Belk's. Shoes that were high at $80-$120 in the past are now in the $150-$180 range "on sale". Shoes are almost exclusively imported. . . If shoes (and coffee) are leading indicators of the tariffs finally landing on the consumer's check-out price, the next few CPI reports could be interesting (assuming we can trust the numbers). I trust what I see and experience for myself much more than what I read. Just sayin'. (She decided NOT to make a purchase. She said she would go barefooted before paying the prices she saw.)

Adam Smith wrote something about this in 1776.
Something about a 'hidden hand' in some small philosophy book called 'Wealth of Nations'.
And, yes, it was a philosophy book - not an economics tome. I can also strongly recommend his book 'The Theory of Moral Sentiments'.

Your wife did not purchase those expensive shoes. Some greedy capitalist pig right here in 'Merica' is salivating over the money she had right in her sweaty palms. The capitalist pig will make shoes of similar quality but be able to sell them cheaper - he/she/they/them/whatever will be rolling in the green and sitting like a dragon on their horde of gold!!! Or, maybe the greedy capitalist pig will be in Italy where they have a 15% tariff rather than a 50% tariff.

I don't like tariffs, but it is what it is.

 

[Boghie]

On Topic...

Interest rates are in the normal range.

We are not facing 2008. Our government is not shutting down the economy like 2020. 6% - 8% home loans were the norm till 2008. No need to drop them.

 

[James48843]

On Topic...

Interest rates are in the normal range.

We are not facing 2008. Our government is not shutting down the economy like 2020. 6% - 8% home loans were the norm till 2008. No need to drop them.

It’s not home loans that are driving interest rates down. It’s the national debt financing. If they don’t go down, then the debt bomb is going to explode, and it will explode sooner rather than later.

That’s who wants rates lower. Those behind the curtain.

 

[Boghie]

We are at a NORMAL FED Funds Rate:



And, yes heavy Federal and States (some) borrowing is pressuring market actual interest rates. The continual borrowing is an upward press on interest rates. If the Federal and State gubmints stopped borrowing money the interest rates would come down.

The Treasury does NOT borrow money from the FED. They borrow via open market bonds.

The sign of danger will be when the FED drops their rate, but the Treasury rate does not drop. That will be End Times...

 

[TommyIV]

That’s who wants rates lower. Those behind the curtain.

The Treasury does NOT borrow money from the FED. They borrow via open market bonds.

The Treasury borrows through open market bonds, yes, but those yields are heavily shaped by the Fed’s Fund Rate. When the Fed signals cuts, Treasury financing costs drop. With the national debt where it is now, every percentage point higher in rates adds hundreds of billions to annual interest costs.

Maybe interest rates are in the normal range for the U.S. economy, but government debt obligations give motive for "Those behind the curtain" to influence the Fed Fund Rate.

 

[nasa1974]

We are at a NORMAL FED Funds Rate:
View attachment 70227


And, yes heavy Federal and States (some) borrowing is pressuring market actual interest rates. The continual borrowing is an upward press on interest rates. If the Federal and State gubmints stopped borrowing money the interest rates would come down.

The Treasury does NOT borrow money from the FED. They borrow via open market bonds.

The sign of danger will be when the FED drops their rate, but the Treasury rate does not drop. That will be End Times...

We got caught up in that mortgage interest rate craziness in 1980. Got married in 1979 and bought my brothers-in-law house and took over on a land contract. In 1980 the bank called in the note saying we didn't process the paperwork correctly, pay up. Started trying to refinance but every time the bank or credit union got bought out and interest rates kept going up. We had an 8.33% interest on the loan, and I think it peaked over 15%. We finally refinanced at 11.25%.

 

[James48843]

We got caught up in that mortgage interest rate craziness in 1980. Got married in 1979 and bought my brothers-in-law house and took over on a land contract. In 1980 the bank called in the note saying we didn't process the paperwork correctly, pay up. Started trying to refinance but every time the bank or credit union got bought out and interest rates kept going up. We had an 8.33% interest on the loan, and I think it peaked over 15%. We finally refinanced at 11.25%.

I hear you on that one. I got my real estate sales license the month that ntetestvrstes went above 15%. I was not good at selling houses.

Then, when twas time to buy my first house, I signed a sales agreement with a quote of a 5.5% rate, but my mortgage company stopped the closing for 60 days, until the rate jumped to 8.5%. I was furious- but what can you do?

 

[nasa1974]

I hear you on that one. I got my real estate sales license the month that ntetestvrstes went above 15%. I was not good at selling houses.

Then, when twas time to buy my first house, I signed a sales agreement with a quote of a 5.5% rate, but my mortgage company stopped the closing for 60 days, until the rate jumped to 8.5%. I was furious- but what can you do?

Financially it got scary. I graduated from my apprenticeship in 1977 so in 1980 as a 3 year journeyman I wasn't making that much. Sue was a surgical nurse but again not making that much. Having your mortgage interest rate potentially jump from 8% to 15% was getting stressful. The 3% jump was doable, but we didn't have more than $100 in the checking account each month.